Plans by chancellor George Osborne to pay lower salaries to public sector workers in poorer parts of the country have been condemned as "cruel" and "grotesque" by union leaders.

Civil servants could be moved to regional pay deals from as early as next month under budget proposals to be announced next week.

The chancellor will argue that public sector pay should mimic the private sector and be more reflective of local economies. He intends to start the process in three Whitehall departments in the coming financial year, as part of a phased introduction.

Critics say the move will entrench economic divisions between north and south and depress regions of the country already struggling in the economic downturn.

It has not yet been decided if localised pay will apply only to new staff or to existing staff as well, but it was being stressed that no current employee would suffer a pay cut. Instead pay levels will gradually be adjusted to take account of costs, leading to larger pay rises in the south-east where some labour shortages exist.

The plans emerged as the four top figures in the budget discussions spoke on the phone in an attempt to finalise the complex Treasury package to be published on Wednesday. Much of the discussion focused on the concessions being sought by the Liberal Democrats in return for agreeing to a cut in the 50p top rate of income tax, as well as the timetable by which this could be achieved.

Union leaders lined up to condemn regional pay deals for public sector workers.

Public and Commercial Services union general secretary Mark Serwotka said: "Driving down pay even further at the same time as cutting public sector salaries and pensions, and planning to cut the 50p tax rate, would not only be cruel it would be economically incompetent and counterproductive.

"Local economies – already suffering from Tory-led, politically motivated butchery – are crying out for investment, not more cuts. It appears that next week's budget is shaping up to include the exact opposite of what our communities need to help them get back on their feet."

Len McCluskey, Unite general secretary, said: "All this will do is drive workers to the better paid regions, leaving large parts of the country without the professionals essential to sustain local services.

"George Osborne's budget will reveal him as a grotesque reversal of Robin Hood, rewarding the super-wealthy by allowing them to skip over their tax responsibilities while mugging the low waged."

Wales's first minister Carwyn Jones, added: "At the end of the day, people work hard. Nurses work hard, police officers work hard, teachers work hard.

"Why should they be penalised because of where they live? Surely we should be looking at a situation where we look to close the gap in income between different parts of the UK rather than make it worse, which is exactly what this will do."

The business secretary, Vince Cable, said on Saturday that care needed to be taken over how local pay was implemented to protect career progression in the civil service.

"The idea of having more flexibility in the public sector is surely right," he told BBC Radio 4's Today. "What we are trying to do is to make sure that throughout the public sector there is more genuine decision making at a local level and you have to take into account pay and conditions.

"But it has got to be done very carefully because in the civil service, for example, you have to have career progression and that kind of national consideration has to be woven into the story as well."

Osborne revealed in his autumn statement last year that he was asking pay bodies to examine moving from national deals to regional pay.

It was not due to operate until next year but could now affect wage packets for the workforce of three government departments from next month, under guidance Osborne is expected to publish.

As many as 140,000 staff at the Department for Work and Pensions, the Home Office and the Department for Transport - such as job centre workers, border staff and DVLA employees, would be affected as they started a two-year pay freeze earlier.

Osborne plans to make the cut in the 50p rate for those earning over £150,000 the centrepiece of the budget, and is said to have been angered by the proposal leaking out this week. The chancellor was inundated by conflicting advice from Tory MPs as to whether the decision would be a political disaster at a time of austerity.

Many Tories tried to blame Lib Dems for the leak, saying it undermined trust between the two coalition partners.

The controversy over the top rate of tax will only be deepened by the revelation that the chancellor wants to press ahead with localised public sector pay.

The Treasury intends to spread the reforms beyond the civil service across the public sector in the years ahead as staff come out of the public sector pay freeze.

The department is not trying to introduce just regional pay, but local or zonal pay that might take account of, for instance, living costs in suburban Manchester as opposed to inner-city Manchester.

The Treasury regards the change as one of the most important measures it can introduce to rebalance the economy. Osborne claims the move would provide a boost to the private sector in the north and south-west, arguing that employers in these areas cannot afford to recruit staff owing to the relatively high public sector wages in cheaper areas of the country.

The Treasury's own research shows that public sector pay is 40% less responsive to local costs than the private sector. The main model for local or zonal pay so far has been the courts service.